Bloomin' Brands, Inc. (BLMN) Q3 2019 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to Bloomin' Brands, Inc. third quarter 2019 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. I would now like to turn the conference over to Mark Graff, Vice President of Investor Relations. Please go ahead, sir.

Thank you and good morning everyone. With me on today's call are Dave Deno, our Chief Executive Officer and Chris Meyer, Executive Vice President and Chief Financial Officer. By now, you should have access to our fiscal third quarter 2019 earnings release. It can also be found on our website at bloominbrands.com in the Investors section. Throughout this conference call, we will be presenting results on an adjusted basis. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our earnings release on our website as previously described. Before we begin formal remarks, I would like to remind everyone that part of our discussion today will include forward-looking statements including a discussion of growth strategies and financial guidance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. Some of these risks are mentioned in our earnings release, others are discussed in our SEC filings which are available at sec.gov. During today's call, we will provide a recap of our financial performance for the fiscal third quarter 2019, an overview of the company highlights and a discussion regarding progress on key strategic objectives. Once we have completed these remarks, we will open up the call for questions. With that, I would now like to turn the call over to Dave Deno.

Well, thank you, Mark and welcome to everyone listening today. Before beginning formal remarks on the third quarter, I want to provide additional context on the company's announcement this morning that we are exploring strategic alternatives. During the past four years, we have made a number of important decisions to improve the long term health and profitability of the business. These included $50 million of investments in food and service enhancements to improve the customer experience, successfully pursuing emerging off premise business, establishing world-class loyalty program and accelerating the growth in our rapidly expanding international business. We also spent $400 million in remodels [indiscernible] brand and improve curb appeal. As a result of these initiatives and a focus on core execution, we have been able to consistently take market share over the past two years on both sales and traffic. This momentum carried into this year as we are outperforming the industry on sales and traffic by 100 and 130 basis points, respectively year-to-date through October. Concurrent with the topline sales momentum, we also continued to improve the profitability of our restaurants as we leverage and monetize the benefits of these investments across the portfolio. Q3 marks the fourth consecutive quarter of at least 60 basis points of adjusted operating margin expansion. In addition, we generate significant free cash flow, which provides increased flexibility for investing across our brands while deleveraging the balance sheet and returning any excess cash to shareholders. Since 2015, we returned over $1.1 billion to shareholders in the form of dividends and share repurchases. While we remain confident in our trends and long term strategy, we do not believe the company's current market value appropriately reflects the company's sales performance, strong record of cash flow generation and intrinsic value. Given that meaningful and ongoing valuation disconnect in the public markets, we are exploring potential strategic alternatives focused on maximizing shareholder value. As part of this review, we have retained BofA Securities as our financial advisor. The Board of Directors and management team are committed to enhancing value for our stockholders. This review is an important next step for our continued success while we execute against our business plan. Now turning to the quarter. Adjusted Q3 2019 diluted earnings per share was $0.10, representing an increase of 25% on a comparable adjusted basis versus last year. Combined U.S. comp sales were flat with traffic significantly outperforming the industry. We have intentionally moderated our average guest check increases to further strengthen value relative to competition. As a result, Q3 traffic outperformed the industry by 210 basis points with a modest average check increase of 80 basis points. This pricing discipline combined with sales momentum from investments in the customer experience and off premise is building was strong in October trends. In October, U.S. comp sales were up 3.6% with traffic up 2.1%. A large part of this sustained momentum is due to the progress made behind our strategic investments and relentless focus on core execution in the restaurant. During the start of Q3, we experienced softer sales trends, consistent with the industry. In addition, we had shifts in our promotional calendar that impacted traffic, particularly in August. However, our sales performance improved considerably in September and as I mentioned into Q4. We believe these improving trends are driven by the following factors. First, the investments made to elevate the customer experience are contributing towards healthy sales growth. As a reminder, these investments were prioritized towards customer facing improvements across food quality, portion enhancements, service upgrades and improved ambience. The benefits of these investments are showing up in improved customer health metrics. Second, we are offering compelling and brand appropriate marketing activities that continue to resonate with consumers. This included Outback's always popular steak and lobster promotion that offers customers the ability to pair their steak with lobster prepared three separate ways at a compelling price point. In addition, the Dine Rewards Loyalty Program now has over 9.7 million members. We continue to leverage the rich data we have collected to enhance the customer segmentation opportunities. Our investments in CRM strengthen engagement through customer centric communication while providing a higher return from marketing spend. Third, we made the conscious decision to pivot towards a more tempered pricing approach. You saw this in the third quarter as the growth in average check was a modest 80 basis points. Over time, the reduced reliance on pricing will further enhance our value equation relative to peers. We remain focused on building healthy quality traffic while also reducing unprofitable discounts. Finally, we continue to capitalize on the rapidly growing off premise business. In September, we announced a third-party partnership with DoorDash. Delivery through DoorDash is now completely rolled out to over 550 Outback restaurants. We are excited about the potential this new channel as a complement to our existing in-house delivery platform. Our research suggests this is a different type of delivery consumer with distinct purchasing patterns and continues to be highly incremental. Despite the DoorDash rollout, our direct delivery business has remained strong with little to no cannibalization. This further validates our omnichannel approach. Just to underscore, once again our recent sales momentum is a combination of all the above not just the success of the DoorDash deal. For example, in restaurant dinner traffic strengthened in October as we continued to take share. Moving to international. Brazil comp sales increased 11% with traffic up 10% in the quarter. These results reflect the strength of our brand positioning, outstanding operations and innovative marketing programs. We also benefited from a more normalized sales environment as we lap the lingering effects of the trucker strike last year. The underlying fundamentals of the Brazil business remained robust. October sales performed well. In addition, new restaurants continue to generate the highest returns in the portfolio with sales well above expectations. The market remains underpenetrated and we are capturing this opportunity. The vitality and future growth potential of this business is tremendous. In summary, our portfolio is in a strong position. We have various sales levers at our disposal and are making significant progress to become a more efficient restaurant company. During the third quarter, adjusted operating income was up 35% and adjusted operating income margins were up 60 basis points year-over-year on a comparable basis. This represents the fourth consecutive quarter of significant margin growth at Bloomin' Brands. We remain on track to deliver our operating margin commitments in 2019. In addition to expected sales growth in 2020, we are continually pursuing opportunities to optimize our overhead structure. These savings will represent a nice down payment to sustained margin growth in 2020 and beyond while we take less overall pricing. We anticipate a strong finish to the year and expect to deliver on our 2019 earnings targets. And finally, before turning over to Chris, I want to thank the over 90,000 team members in the field who bring to life the hospitality, service and experience that make our restaurants so successful. I would also like to thank my colleagues in the restaurant support center who provide great service to our partners. Your enthusiasm and dedication to always putting the customer first is making a difference each and every day. And with that, I will turn the call over to Chris Meyer to provide more detail on Q3.

Thanks Dave and good morning everyone. I will kick off with a discussion around our sales and profit performance for the quarter. I would like to remind everyone that when I speak to results, I will be referring to adjusted numbers that exclude certain costs and benefits. Please see the earnings release for reconciliations between non-GAAP metrics and their most directly comparable U.S. GAAP measures. We also provided a discussion of the nature of each adjustment. With that in mind, our third quarter financial results versus the prior year were as follows. GAAP diluted earnings per share for the quarter was $0.11 versus $0.04 in 2018. Adjusted diluted earnings per share was $0.10 versus $0.10 last year. When evaluating our results, it is important to keep in mind that our $0.10 from Q2 2018 included a $0.02 benefit for the amortization of deferred gains from sale-leaseback transactions. Upon adoption of the new lease accounting standard, we no longer recognize these deferred gains in our financial statements. If you exclude this $0.02 impact of the new lease accounting standard from Q2 2018 results, our adjusted EPS would have been $0.08. Total revenues increased 0.2% to $967 million in the third quarter. Total revenue increases were primarily due to higher comp sales in Brazil and the net impact of restaurant openings and closures. These increases were partially offset by lower revenues from the refranchising of 18 Carrabba's locations earlier this year. U.S. comp sales were down 0.2%. This was driven by an increase in average check of 0.8%, offset by a 1% decline in traffic. Our Q3 average check benefit was a little below our expectations, driven by changes in product mix. Overall, however, the relatively modest level of average check increase in the quarter is consistent with our strategy to ratchet down the level of menu price increases in our results. We are confident that this strategy will provide more value to our customers and unlock healthier traffic. U.S. traffic was down 1% in Q3. While we outperformed the industry in traffic by 210 basis points, the result was lower than expected. This was driven by a couple of key factors. First, overall category traffic was down over 3%. This was a 90 basis point sequential decline from Q2 to Q3. We did see an impact from this category softness in our Q3 traffic. Second, as Dave mentioned, we had timing shifts in our promotional calendar at Outback the impact to traffic more than we expected. It is also worth noting that we continue to opportunistically reduce discounting in our portfolio, particularly at Outback where we are down 11% in Q3 and are now down 17% year-to-date. Although traffic was softer than expected in Q3, it meaningfully outperformed the industry and we are pleased by the momentum we are seeing so far in Q4. We believe the investments in food and service as well as the lift from our new delivery partnership will allow us to outperform the industry on traffic. On to our concepts. Outback posted their 11th consecutive quarter of comp sales growth and outperformance versus the industry. Additionally, Outback traffic exceeded industry benchmarks by over 200 basis point. This result comes despite the shift in our promotional calendar that I just discussed. We estimate this shift had an approximate 120 basis point impact to Outback's traffic in Q3. Our third-party delivery partnership with DoorDash rolled out in late September. The growth of third-party delivery is in line with our expectations. This is proving to be a highly incremental occasion as there has been little cannibalization of our own delivery network. The economics are compelling and this business is profitable. We expect third-party delivery to be a strong contributor to results in Q4 and into 2020. Comp sales were up 0.1% at Carrabba's. We are having success with our $10 Bring Homemade Home program and our off premise business continues to grow. Carrabba's made a decision to utilize multiple third-party delivery providers to complement our own delivery network. Like Outback, this rollout was completed in September. Overall, Carrabba's off premise was 17% of sales in Q3 versus 14% at this time last year. Bonefish Grill comps were down 220 basis points. We tried a new marketing vehicle early in the quarter that underperformed expectations. Trends have since improved and we believe that differentiated look occasion such as our three course dinners will allow us to continue that momentum into the fourth quarter. Comp sales at Fleming's were up 0.4%, representing the seventh quarter of positive comp sales over the last eight quarters. We are pleased with how Flemming's is differentiating itself in the competitive high end steakhouse category. In particular, our private dining business has become a standout performer and represents an opportunity for driving incremental business heading into the important holiday season. Adjusted operating income margin was 2.3% in Q3. As Dave indicated, this was up 60 basis points after adjusting 2018 for the impact of the lease accounting change. This represented the fourth consecutive quarter of significant margin growth. It is particularly impressive that we were able to show this improvement in margins without a large benefit from increases in average check. Our high margin international business continues to grow and we are maximizing our opportunities in overhead and productivity. We are comfortable with our full year adjusted operating income margin expectations of between 4.8% and 5%. We remain committed to grow margins with moderated pricing, while closing the margin gap to our peers. Moving to tax. Our Q3 adjusted tax rate was negative 2%. Q3 is seasonally the lowest income quarter of the year so the rate can be volatile. In terms of absolute tax dollars, this result was modestly better than expectations. I will now take you through the various aspects of our updated full year guidance. First, as it relates to our comp sales guidance, given our performance in Q3 and the ongoing category softness, we believe it is prudent to lower our U.S. comp sales guidance for the year to approximately 1.5%. This is down from 2% to 2.5%. As Dave mentioned, we are off to a good start in October with comp sales up 3.6%. We hope to maintain this early Q4 momentum as we approach the important holiday time period. Second, we now expect commodity inflation to be approximately 1.5%, down from a approximately 2%. Although our seafood category remains inflationary, it is coming in better than expected. Third, our GAAP adjusted tax rates are coming down slightly. Our GAAP tax rate is now expected to be between 5% and 6%. Our adjusted tax rate is now expected to be between 6% and 7%. Fourth, our CapEx is now expected to be approximately $175 million, which is at the low end of our prior guidance range of $175 million to $200 million. We also continue to make progress in reducing overhead costs and expect to be down in G&A for the year. Our strong controls around cost make us comfortable reiterating our full year adjusted EPS guidance, despite lower expectations for comp sales. We will provide detailed guidance on 2020 in our February earnings call. However, given some of the noise surrounding the commodity landscape, it is worth noting that we currently expect commodities to be in the 2% to 2.5% range in 2020. Beef inflation is expected to be roughly in line with 2019. Seafood, which represents approximately 20% of our food basket, is going to experience higher inflation and is the primary reason we expect our 2020 guidance to be higher than 2019. In summary, we feel good about both our third quarter results and where we stand moving forward. Our domestic business is on strong putting and our Brazil business is performing at an extremely high level. We have a profitable third-party delivery partnership and we continue to make significant progress on improving our operating margins. We remain very confident in our long term plan for growth and look forward to updating you on our progress next February. And with that, we will now open up the call for questions.

[Operator Instructions]. Our first question comes from Jeffrey Bernstein with Barclays. Please go ahead.

Great. Thank you very much. Two questions and I am guessing you guys aren't offering any more color on the strategic alternatives. So I will look to the fundamentals. The first question was just on the sales trends you talked about. It just seems like big swings, at least at the Outback. I know the traffic was down more than 1% in the third quarter. And I think it's up over 2% in the fourth quarter. Besides comparisons, which I guess get a little easier, I am just wondering, that's a huge swing, I am just wondering what you think of the drivers of that? Whether it's more Outback specific? Or anything in particular you could point to in the industry that would explain that type of swing?

Yes. Sure. Good morning, Jeff. First of all, we are real pleased with the momentum. As I mentioned we saw it into September and into October. And the industry, we think, is in pretty good shape. It remains choppy. I mean you see it as you look at the industry metrics. But more importantly, it's an opportunity to take share in the marketplace. I mean you look at the change in trends have actually come across our portfolio. We are very pleased with what's happened at Outback that's come across our portfolio and if you look at the investments that we have made in our food and service, if you look at the rolling out the DoorDash partnership and our own delivery opportunity, if you look at some of the pricing that we have been very careful about while removing unprofitable discounting, all of these things are coming together, we believe, including better, improved service at our restaurants, all these things are coming together to build momentum in the company as we sit here today. So these things and it's not just the DoorDash partnership, it's all these things coming together. And we have seen in restaurant trends, traffic trends improve during the September, October timeframe. So we feel very good about where we are going as a company.

Yes. And we have a really, really strong LTO lineup in Q4 at Outback that we are getting the benefit from as well and we will continue to get the benefit from it as the quarter progresses.

Understood. And my second question was just on the operating margin. I know as we entered 2019, you talked about, I guess, a maniacal focus on margin expansion. With now three quarters complete and I think you mentioned 60 basis points of expansion of the past four quarters, just wondering as we think going into 2020, do you think it's possible to sustain at that rate of expansion? And if so, what are the biggest buckets of opportunity? I wasn't sure if it's your initial benefit and then it would fade. I know you mentioned something about maximizing your overhead structure. I wasn't sure if that's a new potential course for an opportunity that might help support the expansion in 2020. But any directional thoughts on the magnitude of operating margin expansion into 2020 would be great. Thank you.

Sure. Jeff, as we talked about in our investor conference in March, this is a multiyear movement forward and we are very committed to margin expansion once again in 2020. If you look at the areas of opportunities, we continue to manage our productivity well. We are making significant improvement in our cost structure above the restaurants, it's own overhead and so we are seeing a significant down payment on that. You will see that going to 2020 and you will see continued healthy traffic growth as we continue to mitigate our discounting. And that allows us to be careful on price increases as we go forward in this value environment. So Jeff, it's a multiyear role and we have got good visibility into that as we go forward and we will provide more guidance in the February call.

Yes. And one thing I would add to that, Jeff, is that strategically speaking, this is playing out exactly how we laid out at our Investor Day. And the one area too, that David mentioned, that I think is really important to note is our international business, particularly in Brazil. Our overall company margins get a real tremendous halo from that international business and that continues to grow. You are going to continue to see strength in margins. And I think the good part about this is that we have talked about less reliance on menu pricing moving forward. As you saw in our third quarter results, we can make this formula work with moderated levels of average check growth.

Thank you.

Our next question comes from Brett Levy with MKM Partners. Please go ahead.

Great. Thanks for the time. I know you are not going to talk much on the strategic but I guess, is there anything that's off the table whether that's paring down the portfolio or refranchising aside from just the other strategic moves and a potential sale? And also when you talk, just a clarification on the trends, you had said you lost 120 basis points of traffic in the third quarter. Is that a shift into 4Q? Or is that just something that's lost and then just lost within third quarter? And just how aggressive do you think you can or need to be in terms of the value construct? And then I will leave if for the queue. Thank you.

Yes. Sure. First of all, there is some shift between quarters that's helping us and did have an impact on Q3. But that's a small part, 100 basis points of our trend improvement. So that's the first part. Secondly, I am not going to get into more details on the strategic review that we announced today. But as we have said in the past, we will always look at the opportunity to improve shareholder value. And so we are looking at all the different alternatives for our company which potentially would include a sale of the company. But we are going to be looking with a lens towards improving shareholder value because we think there is a very large disconnect between what we are producing each and every quarter versus the value the company. And we will provide more information to the marketplace as we go forward. On the pricing piece, we are going to continue to manage out unprofitable discounting and we are going to be very careful about our price increases going forward as we manage our value equation.

Our next question is from John Glass with Morgan Stanley. Please go ahead.

Thanks and good morning. Just going back to the change in your price, I guess. Was this something contemplated earlier in the year and we are just seeing it now? Or is it something of a pivot you decided to do during the quarter as you saw traffic weakening? And is the right level of price mix for, let's say, the Outback brand? Is it stable? Are you in transition during the quarter?

It's something, John, we have been contemplating during the year and it's not something that we need to or tried to come back traffic. Its' a conservative strategy on our part as we go forward. And I am not to get into details on pricing as we go forward. Our goal certainly is to price less than inflation and we are going to be very careful about our price increases as we move forward at Outback and in all of our brands.

And then I understand the trends improved in September and here in October and you have cited a lot of things you have been talking about really for a couple of years now in terms of elevated experience and loyalty, et cetera. But the real change has been delivery, I think. Can you just maybe dimensionalize how much delivery is contributing? Or maybe as you think about expectations, what's a reasonable expectation for near term delivery mix to help us gauge where you think that goes?

Yes. We are extremely pleased with our DoorDash partnership. It worked really well. We rolled it out during the month of September and delivery is about 200 basis points, Chris, of our cost?

Right now, yes, about 200 basis points of the overall cost.

Okay. And that is of October, is that what you re referencing?

It's consistent. It's been consistent. You have got to remember that the DoorDash thing rolled out mid-September. So we didn't get as much of the benefit in Q3 that we would expect moving forward. So it will ramp up over time, we would expect.

And just to reiterate what I mentioned earlier, John, it's a mixture everything coming together, in restaurant traffic, delivery, off premise. And also I mean I would be remiss right now if I didn't call out the tremendous sales growth in Brazil in Q3. And Chris talked about the margins in the business. And Brazil continues to do really well into Q4.

Got it. Okay. Thank you.

Thank you.

Our next question is from John Ivankoe with JPMorgan. Please go ahead.

Hi. Thank you. I am going to ask a couple of questions about the kind of the strategic review and the maximizing shareholder value, if I can. And I think I will keep them general enough. Just from your perspective, what kind of changes between today when the announcement was made and yesterday in the previous quarters where I know you as a management team and you as a Board of Directors has always focused on maximizing shareholder value. So is this just a public announcement of, hey, everyone, come and talk to us and make recommendations of what you think it is possible? Is there a formation of the special committee that we should be aware of and who is leading that special committee? I just want to get your sense in terms of you know what's different today versus the past couple of months in terms of the way you have run the company and looked at your stock price and always considered I think things that you could do to maximize shareholder value? And I have several follow-ups as well.

Well, try to keep the follow-ups, John and finish them all to play by the rules but I am happy to answer the question. You have known us for a long time and ever since we have been a public company, under Liz' leadership when I was CFO, we always talked about maximizing shareholder value and we took lots of steps to do that. We have been a public company for eight years. And if you look at what we tried to do as a company, we have had a lot success. We had some issues we have addressed. But if you look at it, you know, 13 out of the past 14 quarters we have made our EPS. The only quarter we missed was the Hurricane Irma quarter. We have got innovation in the company. We just talked about the DoorDash partnership. We have got margin expansion. We have got high quality brands. We have got good cash flow. And we have got an international business that frankly is underappreciated, not buy you, John, but underappreciated. So given this persistent disconnect, we decided working with the Board to step back ask the fundamental question, what's the best capital structure to go forward. And so we view this opportunity to look at strategic alternatives. No, we are not responding to things. We are taking action here. We have decided to work with our Board to look at various options. There is no special committee. We are moving forward with various alternatives for our company working with BofA. And we just felt that, given where we are at right now, the time is right to do it.

Okay. All right. I understood and thank you for that special committee comment. So let me ask you about Brazil. It's still not that big of a bigger percentage of your overall operating income which is probably why it kind of gets mixed more or less in the middle and doesn't at your specific attention. So let's talk about, for example, how you could maximize value in that business overall? Does it make sense to perhaps that business or refranchise that business? And the question I am going to ask you as what I think a lot of us in the U.S. based people don't understand is, what the financing market is in Brazil and is there a financing environment that's in place in that country? Are other operators in place in that country? Are there multiples that are being paid for operating businesses, in your opinion, that could be value accretive to Bloomin' shareholders? And again I have one more follow-up after that one.

Sure. First of all, you get great value by great leadership and a great brand. And Salim and Peter Rodenbeck really did a great job founding that business and Peter and his managing team are taking it forward. And you have seen the results. I don't need to repeat them. They are in our numbers. They have done it time after time after time again. And so you create optionality with great performance. Now, what's happening is, we are opening up more and more restaurants. We always thought we will get to 100 Outbacks, we see a growth platform there will beyond 100 Outback. We have now introduced Abbraccio which is our version of Carrabba's. So now, we have got optionality on new developments. And as we open up new restaurants, they are beating their CapEx targets by quite a bit, which opens up more and more opportunity. So we love that business. It's growing very rapidly. We are trying to communicate got to shareholders the best we can. And there is a lot of optionality, John, on that business, whether it's company-owned or if it's franchise. There is a lot of interest in the company in Brazil and most importantly, we have a fantastic management team down there that can run the business and continues to grow the portfolio. So what we offer shareholders is tremendous business in Brazil with great optionality.

That's great. Thank you. Final one for me. On paper, while cost structure does seem to be high relative to peers on a percentage of sales basis, G&A, one would think that that would be the biggest part of your margin expansion plan over the next couple of years. So can we talk about where we are in that process? I mean you have mentioned on this call, you have mentioned it other times that you expect 2020 to kind of be a big down payment towards achieving your margin goal. So how far are we kind of in this G&A process? And you, Dave, as CEO is sitting in the seat, do you think you have fairly major efficiency opportunities that as an organization you haven't yet realized that may be allowed but potentially a new structure or different reporting lines, what have you?

Yes. I think we can make our progress in overhead by not having new reporting lines or structures and stuff like that. We are well along in making progress on addressing our overhead. And you have seen some of that in this year already. As Chris mentioned, we are lowering our G&A spend guide for the year. It would be less than last year. So that's number one. Number two is, there still is additional opportunity that we are working within the company. There's robotics opportunities. There's opportunities in IT to continue to maximize our IT opportunities that we have to automate things. Our company has been really responsive to what we trying to do. And the good news is, John, we are not starting today. We have been working on this over the last six months and made significant progress on it. And there is more to come, right. You can't do it all at once. There is more to come. And it will be a significant down payment in our margin expansion for next year.

Thank you.

Our next question is from Jeff Farmer with Gordon Haskett. Please go ahead.

Thank you. Can you guys provide some color on the interplay between that in-house delivery infrastructure that you guys have built over the last couple of years versus the third-party delivery providers once both went live in late September? Just curious how they both sort of worked hand-in-hand with one another.

Yes. I have got to tell you, Jeff, I am so proud of our team at Outback and Carrabba's. And I know Bonefish is thinking about things as well. And by the way, it's not just U.S. Brazil has a really great delivery business that they are rolling out. But the one thing that this enabled us to do and we have been working on this for a number of years, this isn't a fly-by-night thing. We put the infrastructure in place. We put the culture in place. We put the team leadership in place. We put the processes and systems in place to build our own delivery network. That is crucial. I spent 12 years, I think, associated with a piece of that brand, four years in operations. There was a bunch of us in the building that understood delivery really well. So we had that infrastructure and the culture and that got us going. The delivery business in-house is profitable, which is really great. Then under Michael Stutts' leadership and our brand presence leadership, we put together a really compelling DoorDash partnership which we are very pleased with. Our partnership with them has been fantastic and what that enables us to do is to seamlessly integrate that into our culture processing system. We weren't starting from ground zero. That was really important as we rolled it out during September. What we are seeing is the DoorDash business comes in, the do-it-yourself delivery business remains and we are not seeing a drop off in do-it-yourself delivery, which really emphasizes the omni-channel approach which we have been talking about for quite some time. So this is the kind of thing that innovation that we have been thinking about in our company and a platform for growth as we go forward.

All right. That's helpful. And then just a final question. Some of your casual dining peers have provided some high-level data, but data nonetheless, on average check, orders per day, incrementality. Is there anything like that you can share with us for the DoorDash partnership?

It is a different customer. It tends to come later in the day. And it's slightly less or party size, but it particularly ties into the omni-channel approach that we are talking about. And that' about as far as I would like to go. But when you look at the various opportunities in do-it-yourself delivery and DoorDash, it is a bit of a different customer which makes us so excited as we go forward.

Okay. Thank you.

Thank you.

Our next question is from Brian Vaccaro with Raymond James. Please go ahead.

Thank you. Good morning. Just circling back on delivery. I think you said that delivery is about 2% of comp sales mix. Just wanted to be clear, is that specifically third-party sales mix that you are referencing there?

No. That's all delivery. That's the entire delivery contribution to same-store sales in the third quarter.

Okay. In the third quarter specifically. Okay. All right. And would you be willing to comment on what that looks like in October?

No. We are not going to give it. I mean, obviously, let me put it this way, it's not significant growth to a level that it would impact our thoughts around the benefits of the in restaurant dinner traffic that we are seeing. It's not significantly higher.

Yes. I just want to underscore, the change we see is across our restaurant business, not just [indiscernible] happy about. So it's a whole thing.

Yes.

Yes. Brian, it's important to remember that delivery, even though we have talked a lot about it, it is still a relatively small overall part of our sales mix.

Yes. Understood. Okay. And that's a good segue into my next question. I wanted to go back to monthly comp cadence you referenced in the third quarter. Obviously October is encouraging. But really the September improvement could be particularly interesting, given the industry didn't improve all that much. Could you provide some more color on what you think drove the sequential improvement in September? And maybe also elaborate on that marketing and promo mismatch? Was that a specific promotion that moved out of Q3 into Q4? Or something else was going on that you can elaborate on?

Yes. If you look at Q3 and Q4, Brian, by month, it's just choppy. And the main thing is, we ran Back By Popular Demand in Q3 last year. We are running it right now. We talked about the impact on our sales Outback. But I want to underscore, all of our brands are seeing the trend change that we talked about. But it just underscores, Brian, the choppiness of the industry. And most importantly, what we do for sales to grow the business and take share is what we are tying to focus on.

And what was the impact of Dorian to the quarter?

It was very small.

Very small, okay. One last one for me. On the other Outback side, I noticed that that was up, I think, 90 bips on an adjusted basis, mid single digit per week on our rough math. Could you touch on the moving pieces within that line?

Yes, sure. I think generally speaking, productivity and the benefits of increases in average check offset the inflation, but there were a couple of things in play there. One, R&M moves around a little but that was about 40 basis points higher than a year ago. And then operating supplies as we ramp up this delivery engine was about 40 basis points over last year. So those were the big outliers in terms of that dynamic.

And one thing I would like to add is, I did mention it earlier, our do-it-yourself delivery platform is profitable and our DoorDash delivery platform is profitable.

Okay. And last call, Dave, you had mentioned on that that third-party delivery rollout that you might reconsider some of the units where you rolled out the self-executed delivery previously. Have you started to pare that back at all on the self-executed side?

Not yet because what we are seeing is the incrementality I talked about which is very interesting.

All right. Thank you.

Thanks Brian.

Our next question is from Matt DiFrisco with Guggenheim Securities. Please go ahead.

Thank you. One follow-up question or bookkeeping question with guidance and then I had a question. With respect to the G&A, I think you said it's going to be lower in the fourth quarter. How much of that is sustainable and just efficiency and cuts versus maybe a change in compensation because of just lower same-store sales? And then, with respect to sort of the comments made about strategic alternatives, what hasn't been discussed much is, the Outback brand is obviously your flagship brand and so your number one asset. Yet, your peers over the last five to six years, whether it's a LongHorn or a Texas Roadhouse, have all consistently opened stores and grown and the category has not really been weak, it's been relatively a strong category, steak. Would strategic alternatives include ramping up the growth and focusing on your strongest asset whether that's company or franchise development that seems to have lacked the last couple of years?

Sure. On overhead, it's sustainable. The down payment is going to continue going forward and we are making great progress. On openings, Matt, you are exactly right. We have an opportunity to open, we believe, at least 50 more Outbacks. We need to cycle that up. We have talked about that in the past. Relocations continue to do very well. We have got a great pipeline there. Annette Rodriguez and the real estate team really have done a nice job building a pipeline there. So on the opening side at Outback Steakhouse and relocations really, really have an opportunity. And obviously, I talked about Brazil where we thought we could get to 100 Outbacks. We are going to go well beyond that and we are examining, can we go in some smaller cities with a smaller footprint with the Outback name? Can we expand Abbraccio? There is a big, big opportunity down there. And finally I would be remiss, we are really pleased with the new unit openings at Fleming's Prime Steakhouse and we continue to take a look where we can expand that very profitable brand.

Why though, I mean, how about revisiting the number domestically for Outback? And is it somewhat of maybe a fortressing method where the 750 number or so where you could get beyond 800 domestic stores potentially on the Outback brand? Is there something in the model that just doesn't allow it to be that? I mean you do have lunch now. It's not as though it's just a dinner house? What's the limitation there that you wouldn't maybe revisit to see if that target could be higher?

Yes, man, I am sorry if I wasn't clear. But we see for Outback Steakhouse at least 50 new restaurants in the U.S. The Brazil comment is secondary. And we continue with our relocation program. So we agree with you. We think there is expansion opportunity for Outback Steakhouse and we are looking at our international opportunity as well.

Excellent. Thank you.

Our next question is from Jon Tower with Wells Fargo. Please go ahead.

Great. Just a few clarifications and a question. First, the off premise mix in the quarter. I don't think if you had it, I missed it earlier, I apologize. Second and this one seems a little bit off the table but I wanted to make sure. When you are speaking about strategic alternatives, I would assume you are not including the idea of building on the portfolio or the number of brands under Bloomin', but just want to clarify that with you? And then my question goes to the discounting piece. It's obviously been down nicely. I think you mentioned during the quarter that Outback was down 11% year-over-year. And yet traffic still continued to outperform the category and has improved in the fourth quarter. So can you talk about how much more room you have for reducing these discounts before you perhaps materially impact traffic? Thanks.

Yes. Jon, I will start with the off premise mix. And I will turn it over to Dave. So the two big brands that have it, Outback is at 14%. That's 13% increase year-over-year. Carrabba's is at 17% and that's a 22% increase year-over-year. All right. Dave?

Yes. On the strategic alternatives, well, I guess the best thing, Jon, right now is just to say the Board is examining all alternatives and I will leave it at that. And I think it would be just a piece part things wouldn't be something that we would want to do. We have been an acquisitive mode, but I am not going to take anything off the table. But we are really looking at all aspects of our company as we go forward because we do think there is a significant disconnect between our valuation and what we are accomplishing as a group. On discounting, we made a lot of progress. We are getting towards the end of it, the opportunity. We are always gong to look, okay. We are always gong to look at opportunities. We have got a really talented marketing and digital team that really looks hard into that. And so we are trying to make sure that we manage that appropriately as we go forward. But a lot of the progress that has been made is the pretty much behind us.

Great. Thank you.

Our next question comes from Gregory Francfort with Bank of America. Please go ahead.

Hi guys. Thanks for the question. I just had two. The first is in terms of the new third-party platform, DoorDash, do you get the same customer data or there any differences on that front in terms of what you collect in terms of customer spending patterns from them versus when it's happening under on your own platform? And then the second question I had was, labor was very strong this quarter and it seems like that's been a common theme this earnings season across a few of the restaurant chains in terms of maybe wage growth tempering a little bit. I am curious if you could about the drivers of labor this quarter in terms of how much of that was from maybe more benign wages versus better turnover versus Brazil sales leverage or greater efficiency? Any way you can help to frame that up? I think we will get it with the Q, but it would be helpful. Thanks.

Yes. With DoorDash, we get very rich operational data but we get no PII which we think is appropriate. And then on labor before I turn it over to Chris. One of things that we really impact our costs that we are really proud of as a company is our retention levels are fantastic. Our turnover levels are very well managed. And you can imagine that reduces training costs and things like that. So from an operating standpoint, our teams, our brand has done a great job managing through that. So that's a key part of it. I will the rest over to Chris.

Yes. Just to be more specific on labor. Labor, to your point, has been kind of margin headwind this year until Q3. So we are very pleased with the progress there. The actual wage inflation is still in that 3.5% to 4% range. So it was a little bit less this year or this quarter relative to prior quarters. But I think that the main benefit we are seeing there is we did have a real favorability in health insurance in Q3 relative to where it had been. So that's the primary driver of the labor favorability.

Great. Thanks for the thoughts. I appreciate it.

Yes.

[Operator Instructions]. Our next question comes from Sharon Zackfia with William Blair. Please go ahead.

Hi. Good morning. Just to follow-up on that last comment on the health insurance favorability. Can you quantify what that was in the quarter? And remind us, are you self-insured? So is that just kind of more lumpy on an ongoing basis? And then secondarily, just curious I don't know if I recall you commenting before on kind of if DoorDash and that relationship impacts your ability to kind of grow margins at the pace you had alluded to earlier this year at the Analyst Day? So if you could comment at all on the terms there and whether or not that's kind of roughly neutral or how you think about the profitability there?

Sure. Chris, you want to take labor first and then?

Yes. The health insurance, it was $1.3 million favorable year-over-year in health insurance. So yes, it is going to be a little lumpy from a self-insurance aspect.

But the team continues to really do a great job managing that. And it's been a priority of ours because in this business, if are not on top on that kind of stuff, it really can come in and be a cost that we don't expect. So hats off to the team for doing such a great job on that. And then on the DoorDash piece, like I said, it's profitable. It's not going to impede our margin expansion goals. We are gong to be able to continue to grow this and leverage this as we go forward. We are very satisfied with the contract. They are great partners. And we don't see this being an impediment to our overall margin goals as we march forward as a company in 2020 and beyond.

I guess just to follow up on that though. Is there any kind of line item noise that we should be aware of as DoorDash grows? Should we expect more pressure in other restaurant operating costs or anything like that to be offset somewhere else in the P&L? Just any kind of direction there would be helpful.

No. I think just as we grow that, the use of the operating supplies for delivery will grow. So that will put some pressure on restaurant operating expense.

And Sharon, one of the things that you reminded us too, we talked to people and talk to our investors. This is where the customer is going and to be on top on this and moving forward with it and attacking it is really, really great. So it's a profitable occasion for us. We are going to leverage it and we are on top of the customer trends that we are very pleased about.

And then my last question, it maybe too early but is there any difference in customer satisfaction whether you deliver or whether it comes via DoorDash?

No. There hasn't been any anything that we have seen. It's early. But that is something we are on top of all the time. It's early and our team continues to do a great job in all channels there.

Okay. Great. Thank you.

Thank you.

Thanks Sharon.

Our next question is from Andrew Strelzik with BMO Capital Markets. Please go ahead.

Hi. Good morning. This is actually Dan, on for Andrew today. I just had a question on the comp trends quarter-to-date. So it sounds like your average check increases are actually up a little more so far in October compared to 3Q based on those figures you gave earlier. I guess I am just wondering what's driving that, given the potential moderating of average check? Was it mostly just due to mix or compares or something else? And I know you are not committing yourself to any sort of pricing level moving forward, but is it fair to expect something around that October level of average check for the full quarter? Or should we expect that to moderate as we move through 4Q?

Yes. So I will answer the first part of this. As it relates to the trends we are seeing in October, it has to do with the LTO timing that we talked about. The Back By Popular Demand has a higher PPA associated with it. So that's driving this mix related as opposed to pricing related.

And then on pricing itself, for competitive reasons we are not going to get into it. I think you have heard today what some of our broad plans are. And we are going to continue to follow through on that.

Okay. That's helpful. And then maybe just one follow-up. I am just thinking about the third-party delivery and maybe just some more color on why the decision to get into that now? I know you kind of outlined that heavy economic have become more favorable last quarter. But I guess I am just trying to understand, was that really the predominant reasoning for it? Or did you just feel like it was another incremental channel that you couldn't sit out any longer? And given the success of the direct delivery channel which is obviously still performing strongly in its own right, I guess you are trying to better understand what the main driver was to get into third-party?

It's a completely different consumer. We are seeing our numbers. We are not seeing cannibalization of our do-it-yourself. We are seeing an incremental opportunity with DoorDash which we are very pleased about. So that's why got into it. And we also have a wonderful partner with DoorDash and very good economics there.

Great. Thank you.

Our next question is from Brian Vaccaro with Raymond James. Please go ahead.

Thanks. Just one follow-up. On the G&A line, I think you have talked about a multi-year opportunity to try to earn 100 basis points to narrow that differential versus peers. And I guess oftentimes these streamlining initiatives are front-end downloaded. And I am just trying to triangulate around that a bit. Is it reasonable that G&A could be down $10 million, maybe more million dollars year-on-year in 2020 on that down payment that you referenced? Or are there maybe some investments or other moving pieces we should keep in mind?

Brian, we are not going to get into detail on that. We don't plan on providing any detailed guidance for 2020 right now. But I can tell you and you have seen the results, our cost structure and our opportunity there to reduce our cost structure is providing a significant down payment as we go forward. And we are already seeing some of the benefits of that. How much that is and everything else will come as we provide guidance for 2020. But team here has done a great job identifying the opportunities.

All right. Fair enough. And on the commodity outlook, the 2020 outlook, you mentioned. You think these inflation will be similar to what you saw in 2019? Could you remind me what that was in 2019? And then could you also comment on your confidence level in that outlook? How much do you have contracted on the overall basket or your core proteins at this point in time? Thank you.

Yes. Beef is in the 2% to 2.5% range. And so I would say we have a large degree of confidence, Brian. We are basically as locked this year as we have been historically at this point in time. Lot more to come, but we feel pretty good about where we are.

Yes. And in closing, I just want to thank the supply chain team for doing such a great job leading us through that and Michael Healy and his team. So I just want thank everybody for us the call today. Operator, are there any more questions?

There are no more questions at this time.

Okay. Thank you everybody. We look forward to updating you on our Q4 results. Have a great day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.